Tuesday, July 19, 2011

There Is No Federal Budget Crisis

The numbers say there is no budget crisis. Funds are available. Let’s look at the sources:

$159 billion a year is the proposed in the 2012 cost for the Iraq and Afghanistan wars. If we end these wars immediately we can use this cash to pay for part of the Federal budget.

$300 billion a year which tax experts say would come by closing tax loopholes to corporations. Many large corporations have an effective tax rate of zero.

By raising excise taxes and customs tax we can gain perhaps another $100 billion.

$90 billion a year from ending corporate welfare programs in the form of fat subsidies and unfair tax breaks.

$100 billion a year or more by insisting that the termination of Bush’s tax credits for personal income to the wealthy 1% stay terminated.

$100 billion a year over a ten year period gained by reducing our world policemen role. Experts say that a trillion dollars could be saved by doing this and this will not affect our security and protection from attack in a post cold-war world.

Total:  $849 billion over ten years
The total Federal budget for 2012 is planned at $3.7 trillion and as we know there is great battle about this.

An increase of funds of $849 billion is 22.9% of the present projected budget, a 22.9% increase in purchasing power.

And there are more funds available:

Gold Reserves
US Gold reserves are estimated at about 8100 metric tonnes. At the current price of gold at $1605 per ounce (7/18/11) this works out to about $460 billion in gold owned by the government. If the government sold 30% of our gold assets over time so as not to crash the price of gold, there would be about $128 billion available over perhaps 3 years, say $40 billion a year for three years.

Federal Reserve Holding Treasury Bonds 
The total amount of debt the government has is about $14.5 trillion dollars. Surprisingly, the Federal Reserve holds over $1.6 trillion in Treasury bonds (7/13/11), about 11% of national debt, more than China or Japan.

This means we have one sector of government owing another sector which seems to make little sense, clearly the solution is to dissolve the debt by tearing up the bonds, so we do not have to pay ourselves.

Currently, the Treasury pays out $300 billion a year in debt obligations. Eliminating Federal Reserve holdings would knock $33 billion a year off of our debt payments.

The reason the central bank buys Treasury securities in the first place is part of a strategy that involves adjusting interest rates and inflation. When the Fed buys bonds it is putting money into the economy and this might lower interest rates. When the Fed sells its supply of bonds it is trying to remove money from the economy in attempt to lower the inflation rate.

But what can be done is this: Current bonds held by the Fed can be “retired”. When the Fed finds it needs to conduct a tactic to deal with threatening inflation, it can get bonds from the Treasury with a promissory note to pay it as soon as the bonds are sold.

The Treasury can then put the funds into a special account to pay the principal and interest on the bonds and/or make other uses of the monies as long as there is a minimal inflation impact -- because we don’t want to negate the work of the Fed.

Adjusted Grand total:
An increase in funds is now amounting to $922 billion over 3 years, and $882 billion for 7 years more.

An increase of funds of $922 billion is 24.9% of the present projected budget, a 24.9% increase in purchasing power.

There is no budget crisis.

What the numbers show is that there is mathematically no budget crisis, what we have is an ideological or political crisis.

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